Yesterday 26th November 2025 saw Chancellor Rachel Reeves announce her much anticipated autumn budget. There are some changes relating to Inheritance Tax (IHT) to consider and that Will Writers and Estate Planning Practitioners ought to be aware of.
Infected blood compensation payments
The big win is the announcement that all compensation payments from the Infected Blood Compensation scheme will be free of IHT “regardless of the circumstances in which those payments are passed down”.
Although compensation payments made directly to victims of the infected blood scandal are exempt from IHT, unexpected IHT issues could arise where the victim passed away more than two years before the payment was made. In these cases, a ‘secondary transfer’ arises that brings the compensation payment into IHT resulting in some families missing out on the opportunity to plan for IHT.
This issue of secondary payments was raised by STEP and the Association of Lifetime Lawyers, who sent an open letter to the Chancellor earlier this year and have been campaigning the government to fix the flaw. Thanks to their hard work to shine a light on this injustice the flaw will now be fixed. With immediate effect, compensation payments made to the first living recipient(s) of a victim who has died before the compensation was paid will receive an IHT credit to enable them to pass on the value of the compensation on their own death free of IHT. This applies to compensation payments made before or after 26 November 2025.
Additionally, the first living recipient(s) will have two years to make a gift of the compensation they receive without an IHT charge. This applies to lifetime gifts of compensation made on or after 4 December 2025.
IHT Thresholds Freeze
The Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB) had previously been frozen at their current levels (£325,000 and £175,000 respectively) until April 2030. The freeze on these thresholds has now been extended for a further year so they will remain unchanged until April 2031.
It was also announced that the new £1m allowance for 100% Business Property Relief (BPR) and Agricultural Property Relief (APR) due to be come into effect in April 2026 will remain fixed until April 2031.
BPR and APR transferability
The 2024 Budget announced huge changes for BPR and APR, limiting the availability of 100% relief to the first £1m of qualifying business or agricultural property, with any excess qualifying property only qualifying for 50% relief. This change is taking effect from April 2026. An unpopular announcement was that unlike other IHT allowances, this new £1m relief would not be transferable between spouses and civil partners.
In the autumn budget 2025 this has been amended. The new £1m allowance will now be transferable between spouses and civil partners, so if on first death the allowance is unused the spouse or civil partner will be able to benefit from double the allowance on their subsequent death. This reduces the urgency for families to plan around using up the allowance on first death.
Pension Funds
Personal representatives of estates will be able to instruct pension scheme administrators to withhold up to 50% of taxable pension benefits for up to 15 months after death to cover potential inheritance tax (IHT), interest and costs. This measure aligns with rules taking effect from 6 April 2027, under which most unused pension funds and death benefits will fall within the scope of IHT and must be reported and paid by personal representatives.
The government has also confirmed that once HMRC has issued a certificate of discharge, personal representatives will not be liable for any IHT on pension benefits that come to light after that clearance has been granted.
The Autumn Budget 2025 delivers several developments for inheritance tax, offering welcome clarity in some areas while extending freezes and restrictions in others. The changes to infected blood compensation payments represent a meaningful correction to an injustice, and the new transferability of the £1m BPR and APR allowance will ease planning pressures for many families. However, the continued freeze on the NRB and RNRB, alongside the forthcoming inclusion of most pension death benefits within the IHT regime, reinforces the need for proactive estate planning.
As the IHT landscape continues to evolve, Will Writers and Estate Planning Practitioners should review clients’ arrangements to ensure they remain tax-efficient and aligned with the updated rules.
Image sourced: HM Treasury provided under Open Government Licence
